Covid-19 has hit the global economy hard. While none of us can truly predict the scale of economic devastation it will leave behind, it is clear that the shock waves will be felt for some time. Whatever the precise impact may be, the prospect of a global economic crash and a decade of low growth followed by a coronavirus-induced recession leaves the outlook in a bleak state. There is now a real risk that living standards might well be lower at the end of this decade than at the start and our oldest industrial communities will take the hardest hit of all.
We are not alone. Every economy has been hit, but the UK economy has been hit particularly hard. Our drop in GDP growth from July to September this year, compared to the same three months last year, was the largest in the G7. But let us not fool ourselves into thinking our economic outlook was rosy before. It was not. For many British households, the last decade has been tough and full of uncertainty. Our economy is deeply unbalanced and lopsided with many communities feeling left-behind and experiencing little or no growth. These fundamental challenges may pre-date the virus but they have left us severely weakened and will now hinder our recovery.
The diagnosis is gloomier still when you consider the long-term pressures on the public purse over the coming decades: the rising costs of climate change, pensions, training, social care, education, and infrastructure. We must tackle these problems head on. A return to the status quo will make us poorer in every way.
To tackles these issues properly, government at every level, economists, and industry cannot operate in silos. We need to work together, draw on fresh, innovative ways of getting our economy to grow again with renewed vigour. This time we must ensure every region contributes to the national endeavour and no one is left behind in the wake of this devastating pandemic.
This week, I was appointed as Chair of the Institute for Prosperity‘s Advisory Board, a brand-new organisation founded by businessman and economist John Mills. I am proud to say that our Board brings together politicians, academics, and economists from across the political spectrum. Our aim is to change the conversation and debate on how best to get our economy growing again. This includes figures such as Sir Vince Cable, John Penrose MP, and Stephanie Peacock MP. We believe supporting UK manufacturing and growing vital industries will help to rebalance the economy, create more long-term job opportunities, and deliver the economic growth we need to pay down the national debt.
Founded in May 2020, the Institute was launched not because of Covid-19, but because for far too long the UK has had a growth problem. As our country shifted over the past 40 years from an industrial economy to a primarily services-based one, some regions have boomed, and some have faltered. Our former industrial heartlands have been hollowed out by deindustrialisation, and there has been a lack of investment into these communities to create well-paying, stable private-sector jobs.
Their economies are too often dominated by short-term, low-paid, low-skilled work. Many communities no longer have confidence in our economic system or that their children and grandchildren will be any better off. Is it any wonder they harbour a mistrust of politics and in our democratic system?
These issues are deep-seated and complex, but we cannot ignore them. The levelling up agenda is the right one to pursue, but we can only level up those regions and towns through a proper manufacturing revival – increasing manufacturing from less than 10% of GDP to 15% of GDP. Our economy cannot work solely in favour of the services sector. It must work for manufacturing too. And the record shows that manufacturing jobs pay better wages than the norm in a lot of our regions. Increasing manufacturing could bring prosperity back to every region, ending the two-speed Britain where London and the South East are the only ones in the fast lane.
For a start, we need to increase national investment from below 20% of GDP to around the world average of 25%. A national programme to invest in energy, technology, infrastructure, and skills year after year after year would create the right ecosystem for modern-day manufacturers to thrive. In so doing we would make more goods to sell abroad and more British homes and businesses would be using goods stamped “Made in Britain”.
Our approach says that we must learn from Switzerland, Singapore, Germany, and many others who have given far greater priority to manufacturing. There are lots of voices in industry and academia who have important things to say on this. Here, at our Institute, we believe we can fashion a cross-party consensus to amplify those voices and ensure the UK gets this recovery right. We cannot afford to fail.